Sorry: No End in Sight to Housing Downturn

The pundits are all saying that the housing “bottom” is upon us.

They base it on the uptick in sales that are occuring in less than a handful of states- including California, Arizona and Nevada.

In some places in those states, foreclosures have driven prices down below 1989 levels.

Houses in the Phoenix area that once sold for $300,000 are now listed for $50,000 and $70,000 by the bank.

How could there NOT be an uptick in sales?

The problem is- not many sales are occuring of “organic” properties (i.e. those not owned by the bank.)

Houses owned by normal sellers can’t compete with bank prices so those homes sit on the market. Yet, the bank prices are now setting the comps and essentially ARE the market in those areas.

In many other parts of the country where foreclosures, while plentiful, aren’t yet pushing down prices by huge percentages- can we say we’re at the “bottom”?

Chicago Prices Not Cratering

On the north side of Chicago with the exclusive neighborhoods of Lincoln Park and Lakeview, you can hardly tell there is a housing bust at all. Lincoln Park prices on single family homes are down only 2.2%. Lakeview is also holding up fairly well.

Inventory, while growing, hasn’t exploded.

And while there are occasional foreclosures, especially of condos, nothing is selling for $70,000 in these neighborhoods.

Could it be that the “bust” just won’t be as pronounced in some cities and states as it is in, say, California or Arizona?

Chicago was not a complete innocent in the housing boom. It saw its own form of speculation as thousands of new condos were added, including nearly 10,000 in the “new” neighborhood called the South Loop. Many of those buildings are only now nearing completion at a time when condo loans are very difficult to obtain.

Prices Not in Line with Rents or Income

In Chicago, sales prices, despite a slight decline, still don’t appear to be in line with either rents or average incomes. In most cases, it is still far cheaper to rent than to own the same home.

And the $500,000 single family home on the north side is still the norm despite incomes that don’t support that price point.

The Nation Needs a Reality Check on Housing

What’s wrong with affordable housing? I applaud those in Arizona that are now able to buy their first home (instead of renting) for something comparable to the rental prices. This is how it SHOULD be.

It will make us healthier as a nation in the long run.

Of course, we’ll have to go through the pain now.

But why do people think $500,000 home prices are “normal”? They’re not. $500,000 homes used to mean you were quite well off. That wasn’t what you paid for a “starter” home (which is what you now pay in many Chicago north side neighborhoods along the lakefront.)

Until prices come down, nationwide, to something that is equivalent, or under, rental prices, the “bottom” of the housing market is not yet upon us.